SMALL BUSINESS RESOURCES

What can I claim back on tax?

4 min read

If you’re in the UK and are self-employed, you’re likely eligible to claim tax back, or make a tax deduction with the HMRC.

Let’s unpack the definition of a tax deduction, how it operates, and what you can claim back on your business taxes.

What does tax deductible mean?

A tax deduction refers to eligible business expenses which can be removed from your total taxable income.

Most purchases you’ve made, or expense you’ve incurred, for the purpose of running your business are tax deductible.

Let’s say you’ve earned £50,000 this tax year. Within this period, you’ve also spent £10,000 on eligible business expenses, sustained while running your business. This means your taxable income is now only £40,000.

As you can see, tax deductible expenses act to reduce your income in the eyes of the HMRC and you’ll likely end up owing them much less income tax.

How much can you claim on tax without receipts?

To claim a tax deduction on your business expenses, you’ll generally have to provide proof of payment. Without the proof of a receipt, you’ll encounter great difficulty attempting to substantiate your claims with the HMRC, if requested.

This requirement to retain records and receipts is in place to combat fraudulent tax deductions.

But what happens if you didn’t keep receipts of the business expenses you intend to claim as tax deductions?

This becomes a little tricky as the HMRC doesn’t actually require you to submit receipts when you file your Self-Assessment tax return.

Let’s say you don’t have receipts for 5% of your tax deduction claims, if you have other records or notes, this is likely acceptable. However, you could attract the attention of the HMRC if a large portion of your claims cannot be backed by proof.

The short answer is, don’t attempt to claim expenses without receipts, lest a tax inspector ask you to back your claims.

Tax deductions you can claim

What are some of the most common tax deductions you can claim for your UK small business if you’re self-employed?

While the following are all eligible tax deductions, how you claim, the amount you can claim and rules around the process will be affected by the basis for which you use to account for them.

You may use either cash basis accounting or traditional accounting to calculate and claim, so make sure you’re aware of the differences and gain advice from an accountant or business advisor if unsure.

Pro Tip: You should also be aware that the following advice differs if you run a limited company.

Office supplies

You may claim for any office supplies or equipment you use in your business premises to run your operations. This includes:

  • devices like phones and computers
  • stationary
  • internet and phone bills
  • printing and printers
  • rent
  • rates
  • insurance
  • office furniture
  • business software

It should be noted that if you’ve purchased property for a business purpose, you cannot claim this back on your taxes.

Donations to charity

Any donation your business makes to a registered charity is not tax deductible.

Mileage costs

In terms of vehicles, mileage and on road expenses, there are a range of expenses you can claim for:

  • business vehicles
  • insurance
  • repairs
  • fuel
  • hire costs
  • licenses
  • taxi and public transport fares

Keep in mind that you can only claim for the portion of transport expenses you use while running your business. You cannot claim for personal use, travel to and from home, or fines.

Legal costs

If you enlist legal, advisory, or financial services for business purposes, you may claim for:

  • solicitors
  • business advisors such as accountants
  • architects
  • surveyors

You may not, however, claim for legal advice around the purchasing of property or fines for breaking the law.

Financial costs

There will likely be several financial costs and fees associated with the operation of your business. You may claim for the following financial costs:

  • bank fees
  • overdrafts
  • credit card charges
  • interest on loans
  • hire purchase interest
  • lease payments

Unpaid invoices

Whether or not you are able to claim unpaid invoices (or bad debts) as deductions is predicated on a few deciding factors.

You may claim an unpaid bad debt so long as you’ve already included this in your turnover and have confirmed (with proof) that this debt will go unpaid. You may also be due for a VAT refund if you’ve already paid VAT for this unpaid debt.

You may not claim bad debt if:

  • you use cash-based accounting methods
  • you didn’t include it in your turnover
  • the bad debts are related to the disposal of fixed assets, such as land, buildings, or machinery.

Marketing costs

You may claim deductions for various expenses you incur while advertising and marketing your business. Such marketing expense deductions include:

  • your website
  • free samples
  • advertising

Clothes

If you have a unform or business-related item of clothing such as protective wear or costumes for performers, you may claim these as business expenses.

Be careful here, as you cannot claim the cost of personal clothing such as a busines suit, dress, or similar professional attire – even if this is expected in your role.

Employee costs

If your business employs staff, you may make several claims in relation to the expense worn by your business in the staffing process.

You may claim for:

  • employee salaries, bonuses, benefits, and pensions
  • agency fees
  • subcontractor costs
  • National Insurance
  • training courses you provide employees that relate to your business

 

Subscriptions

If you subscribe to industry relevant magazines, journals, and directories you may certainly claim the cost of these as a tax deduction. Be sure they pertain to your vocation and are relevant to your business machinations or furthering knowledge.

Home business expenses

If you run your business from home, a reasonable portion of home-related expenses can be claimed for business use. The following expenses (in whole or part) may be claimed:

  • mortgage
  • utility bills
  • council tax

If you require more information on tax deductible home office expenses, see our full article here.

Flat-rate expenses

Flat rate expenses, also known as simplified expenses, are a set rate of deduction used by sole traders and small businesses to simplify the process of calculating deductions. 

For the sake of simplicity, there are several areas where you can use simplified flat rate expenses:

  • business costs for some vehicles
  • working from home
  • living in your business premises

All other expenses mentioned above must be properly calculated. Use the UK Government’s simplified expense checker to see the rates and decide whether you’re better off with the traditional method. 

That concludes our quick guide on how to claim tax back or make a tax deduction on your eligible business expenses. Every self-employed business owner should be aware of these tax-deductible expenditures. However, even if you’re well-schooled on these matters, the advice of a good accountant or bookkeeper will be indispensable to ensure you properly minimise your taxable income.